Chapter 2

Recording business transactions

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 Learning objectives
• Explain accounts, journals and ledgers as they relate to recording
transactions, and describe common accounts
• Define debits, credits and normal account balances, and use
double-entry accounting and T-accounts
• List the steps of the transaction recording process
• Post transactions from the journal to the ledger
• Prepare the trial balance from the T-accounts

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(1) Collected source of documents (Thu thập chứng
từ ghi sổ)
(2) Recorded to the JOURNAL (Định khoản vào sổ
NKC)
(3) Posted (Copied) to the LEDGERS (T-accounts)
(4) Prepared the TRIAL BALANCE (Lập bảng cân bằng
thử)
(5) Prepared the FINANCIAL STATEMENTS (Lập báo
cáo tài chính)
 2.1. The account, the ledger and the
journal
• An account is the detailed record of all the changes that have
occurred in a particular asset, liability or owners’ equity during a
period
• The journal is the chronological record of the transactions NKC
• The ledger is the record holding all accounts SC
• A list of all the ledger accounts, along with their balances, is
called a trial balance

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 2.1. The account, the ledger and the
journal

Record
Copy (post) to Prepare the
transactions in
the ledger trial
the journal
balance

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 2.1. The account, the ledger and the
journal
Assets
An asset is a resource controlled by an entity as a result of past
events that is expected to provide future economic benefits to the
entity in the future

• Cash • Prepaid expenses

• Accounts receivable • Land
• Bills receivable (có • Buildings
interest) • Plant and equipment
• Inventories

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 2.1. The account, the ledger and the
journal
Liabilities
A liability is a present obligation of the entity arising from past
events, the settlement of which is expected to result in an outflow
from the entity of resources embodying economic benefits
• Accounts payable
• Bills payable
• Accrued liabilities

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 2.1. The account, the ledger and the
journal
Owners’ equity
The financial estimate of owners’ claims to the value in a business
is called owners’ equity. It is the residual interest in the assets of
an entity after deducting all liabilities
• Capital

• Drawings

• Income

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 2.1. The account, the ledger and the
journal
Chart of accounts

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 2.2. Debits, credits and double-entry
accounting
• Accounting is based on a double-entry system
• Each transaction affects at least two accounts
• A popular account format is called T-account

Debit Account Title Credit

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 2.2. Debits, credits and double-entry
accounting
• The account category determines how increases and
decreases in the account are recorded as debits and credits
• The pattern of recording debits and credits is based on the
accounting equation

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 2.3. Recording transactions in the
journal

Specify Determine
each whether Enter the
Identify the account each transaction
affected by account is in the
transaction the increased journal,
from transaction or including a
source and decreased brief
documents classify it by the explanation
by type transaction

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2.3. Recording transactions in the journal
Ex: The Smart Touch business received of Sheena Bright’s $30,000
cash investment in the business.
1. The source documents: Bank slip
2. The accounts affected: Cash – Capital
3. The accounts increased/decreased: Cash Increase / Capital
Increase.
Date Accounts and explanation Debit Credit
(1) Cash $30,000
Capital, Sheena $30,000
-> Received cash investment in the business

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 2.4. Transactions analysis, journalizing
and posting to the accounts
Copying information (posting) from the journal
to the ledger

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 2.4. Transactions analysis, journalizing
and posting to the accounts
The normal balance of an account (Expanding
the accounting equation to account for
revenues and expenses)

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 2.4. Transactions analysis, journalizing
and posting to the accounts
Flow of accounting information

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 2.4. Transactions analysis, journalizing
and posting to the accounts

Ex: Practice journalizing and posting with specific examples:

Details of transactions occurred at Smart Touch business
(1) Sheena Bright invested $30,000 cash in the business.
(2) Paid $20,000 cash for land.
(3) Bought $500 of office supplies on credit.
(4) Received $5,500 cash from clients for service revenue earned.
(5) Performed training service for clients on credit, $3,000.
(6)Paid cash expenses: computer lease, $600; office rent, $1,100;
employee salary, $1,200; electricity and gas, $400.

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 2.4. Transactions analysis, journalizing
and posting to the accounts

Ex: Practice journalizing and posting with specific examples:

Details of transactions
(7) Paid $300 on the account payable created in transaction 3.
(8)Remodelled Sheena Bright’s personal residence. This is not a
transaction of the business.
(9)Collected $1,000 on the account receivable created in transaction
5.
(10) Sold land for cash at its cost of $9,000.
(11) Withdrew $2,000 cash for personal expenses.

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 2.5. The trial balance
• A trial balance summarises the ledger by listing all the
accounts with their balances
• Throughout the accounting process, total debits should
always equal total credits. If not, there is an error
• Errors can be detected by calculating the difference between
total debits and total credits on the trial balance

Ex: prepare the trial balance of Smart Touch as at 31 May

201N

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 2.5. The trial balance

SMART TOUCH LEARNING

TRIAL BALANCE
AS AT 31 MAY 201N
ACCOUNT TITLE BALANCE

DEBIT CREDIT

Cash $ $
Accounts Receivable
.
.
.
Total $ $

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 Summary: Chapter 2
• The accounting equation must always balance after each
transaction is recorded. To achieve this balance, we record
transactions using a double-entry accounting system
• A transaction occurs and is recorded on a source
document
• Then, we identify the account names affected by the transaction and
determine whether the accounts increased or decreased using the
rules of debit and credit
• Next, we record the transaction in the journal, listing the debits first.
We then post all transactions to the ledger
• Once the ledger balances are calculated, the ending balance for
each account is transferred to the trial balance

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 Tasks in class
Textbook: Chapter 2
• Quick Check
• Starters
• Exercises

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 Tasks at home
1/ Homework:
Textbook: Chapter 2
• Problems
• Apply
2/ Self-study:
Key References [2]: Chapter 3

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 The end of Chapter 2
Recording business transactions

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